Prices for spot propane cargoes on the US Gulf Coast hit 68-month highs Monday amid weak Mont Belvieu prices and softer freight rates.
FOB USGC propane cargoes for loading 30-45 days forward spiked to a 30-cent/gal premium over cavern product Monday. The last time the propane cargo premium over cavern product was higher was in April 2014 at 30.50 cents/gal.
So far in December, spot propane cargoes is averaging a 17.08 cents/gal premium to its cavern counterpart, more than double the November average of 7.92 cents/gal and a five-year average of 6.02 cents/gal.
One of the reasons behind the recent spot cargo strength is low Mont Belvieu prices, which have come off nearly 13 cents since the start of the month on the back of wide-open arbitrages. Late last week, the arbitrage from Houston to Asia was open on paper to the tune of $80.62/mt, a record high, and at $45.65/mt from Houston to Europe, S&P Global Platts data showed.
December non-LST propane, reflecting barrels at the Enterprise storage and fractionation facility in Mont Belvieu, Texas, traded at 42.875 cents/gal at 10 am CST, down from Friday’s close of 44.50 cents/gal.
“Cavern propane is low because we’re already at maximum export capacity at the docks,” said S&P Global Platts Analytics’ Andrew Neal, adding: “So excess [product] is pricing into domestic demand.”
Additionally, sources attributed high cargo premiums to strong Asia prices and Middle East supply tightness.
“Demand is steady in Asia and Europe as Saudi Arabia has cut output, including of LPG,” said one source. “The alternative supply source is the US.”
VLGC RATES CONTINUE TO FALL
Meanwhile, Very Large Gas Carrier freight rates have continued to fall in recent weeks as vessels return from International Maritime Organization low sulfur fuel regulation-related retrofits. The rate for the Houston to Japan route has remained unchanged at a three-month low of $115/mt for 10 days in a row, while the route from Houston to Europe fell to $65/mt last week. Houston-Japan VLGC rates have averaged $118.89/mt thus far in December, compared with $129/mt in November, while Houston-Europe rates fell $6.27/mt to $68.26/mt in the same period.
The latest data from the US Energy Information Administration showed a 2.56 million-barrel drawdown in propane stocks in the week that ended December 20, outpacing market expectations of a 2.4 million-barrel draw and bringing US inventories down to 88.4 million barrels.
Despite market talk of maxed-out exports, the latest EIA report showed total US exports fell 196,000 b/d week on week to a monthly low of 1.03 million b/d. Platts Analytics data compiled from trade flow software cFlow showed 21 LPG carriers, including 12 VLGCs, were loaded at US ports in that week.
Sources were unclear on the reasons behind the downturn in exports, with one trader adding: “If anything, they should be flat, so could just be ship timing.”
Another shipping source noted closures on the Sabine-Neches Waterway two weeks ago due to fog. The waterway was closed for 33 hours December 15-17, according to shipping sources.